How to protect your business from an unexpected divorce

There are more than 2.2 million small businesses now operating in Australia, but as this number continues to climb, so does our divorce rate. While these figures may not be directly connected, going through a separation or divorce can have a very real and unfavourable impact on the future of a new or small business.

While it may be difficult to think about and plan for the potential breakdown of a relationship, especially when things are going well, it should be an essential business consideration similar to how we think about taking out compulsory public liability, contents, vehicle and product insurance. In reality, however, many business owners fail to see divorce as a feasible threat or risk — until it’s too late!

In my 25 years working in divorce law, I’ve seen many clients surprised and shocked by the impact a separation can have on their business. In many cases, the entire direction and goals of the company change, and as day-to-day duties take a back seat, the business often suffers. As with any asset, you need to make sure you are covered for the worst-case scenario, and your business is no exception.

Get a financial (prenuptial) agreement

It might be a tricky conversation to have, but it’s worthwhile discussing a prenuptial agreement with your partner before getting married. A prenup should be seen as a form of insurance for your business and finances, in case of separation or divorce, but if you are already married or in the process of a divorce settlement, it may not be too late to organise a financial agreement.

Many people don’t realise that prenups can be set in place before, during and even while ending a marriage. However, if you started the business during the course of your marriage, it may not be as simple as organising a prenup or claiming the asset is entirely yours. Talk to a family lawyer for expert advice and to better understand your options in this situation.

Keep your accounts in order

It’s common to see a spouse supporting and contributing to their partner’s business, particularly in those challenging early years when hiring staff may not be an option. While it seems like a logical and natural role to take on, it makes dividing assets a little more complicated. If your partner has had any involvement with the business, you will need to clearly outline and prove what they have contributed.

All assets, income, profits and even interest earned by you and your spouse during the marriage will become relevant in negotiating the divorce settlement. Working with both your accountant and family lawyer to get all of your paperwork in order could become one of the most important, stressful and time-consuming things you may have to do. Ensuring your paperwork is kept up to date will be a huge help and put you 10 steps ahead of most people if your relationship should end.

You may also need to get the business professionally valued, if one party wants to buy the other out or both parties decided to pack up shop and sell. Just like a prenuptial agreement, you can get a business valuation anytime and be prepared should anything unexpected happen.

Secure your business operations

Even if your partner has not played a direct or active role in setting up and running the business, a separation or divorce could still significantly disrupt your business and livelihood. Disruptions to business continuity, staff morale and reputation can be greatly affected during this time.

If your home has been doubling as an office, for example, you may find yourself looking for a new place to work if you’re unable to remain living in the family home. Having stability during this stressful time will allow you to continue running your business and minimise any interruptions on the day-to-day operations.

Get a good support network

Even the simplest divorce can take its toll, so having a good support network of friends, family and staff members is also crucial during this highly emotional and stressful time. If you’re a sole trader or don’t have anyone to lean on and talk to, seeking the support of an experienced and qualified counsellor or therapist may also be useful. If you don’t already have someone you trust, a good family lawyer will have a network of experts they can recommend to you.

Time and time again, I have seen the divorce process drawn out when a client is unable to let go of the past. Working through any emotional issues can help you see the situation more clearly and come to a quicker resolution, avoiding further or extended periods of distress.

Avoid going to court

Disputes taken to the court can become lengthy and expensive and, in my opinion, almost no one walks away a winner. By choosing to go to court you’re leaving the final decision and dividing of assets in the hands of the judge. You’ll feel more empowered by taking control of the situation and actively shaping your future. You’ll also avoid any regrets, disappointments or further litigation if things don’t go your way in court.

It’s in the interest of both parties to co-operate and engage in dispute resolution sessions such as round table conferences, mediation and arbitration. Unless it involves criminal or domestic violence matters, most divorce cases can actually be resolved fairly quickly. In most of the divorce cases I’ve worked on, dividing of assets and working out the custody of children is done well before the divorce papers are signed. The divorce papers are simply a formality that allows you to legally marry again.

SmartCompany is the leading online publication in Australia for free news, information and resources catering to Australia's entrepreneurs, small and medium business owners and business managers.

Monday to Friday, SmartCompany.com.au publishes news, business trends and ideas from around the world, profiles and features, as well as all the latest business, tax, legal, marketing, politics and innovation developments occurring around the country.